Aqua Pure purchases 50,000 gallons of distilled water each year. Ordering costs are $100 per order, and the carrying cost, as a percentage of inventory value, is 80 percent. The purchase price to CCC is $0.50 per gallon. Management currently orders the EOQ each time an order is placed. No safety stock is carried. The supplier is now offering a quantity discount of $0.03 per gallon if CCC orders 10,000 gallons at a time. Should CCC take the discount? WHY?
HINT to resolve the problem : If the firm orders 10,000 gallons at a time, TC = (50,000/10,000)($100) + (10,000/2)($0.47)(0.80) = $500 + $1,880 = $2,380.